Do the banks think we are smarter and more financially astute than we really are?
They are acting as if they do, said Katherine Percy, chief executive of adult literacy and numeracy experts Workbase.
Percy said banks and other financial services firms communicate and interact with customers as though they are dealing with a "mythical" average New Zealander, one who appears to have a far higher level of financial acumen than we really do.
"There is evidence that at least half of our adult population do not have the financial literacy, knowledge and skills to understand the unfamiliar, technical information contained in banking, investment and insurance documents and brochures," she said.
People stumble on financial and legal jargon in overlong documents which even challenge people with high levels of literacy and acumen. They are claims that Kirk Hope, head of the New Zealand Bankers' Association denies.
"Banks have worked really hard and have involved people like Writemark in the development of their product material," Hope said.
They also all have programmes to lift financial literacy among customers, and people in the community. These include iwi-specific projects, schools banking, and projects like BNZ's elder abuse seminars.
Hope said the banks were also sponsors of financial literacy surveys (ANZ) and university financial literacy centres (Westpac).
They had also established channels for people to query things they did not understand - via online services, by phone and in a branch to name three.
But Percy said a high proportion of New Zealanders lacked the financial knowledge and skills to manage their finances or insurance and, most concerningly, to ask the right questions or to realise the potential risks inherent in financial commitments.
This leads them to stumble into personal finance disasters.
"Excessive interest rates for personal loans, finance company crashes that take investors' life savings, insurance policies with unexpected and unreasonable exclusions, savings accounts with more fees than interest - many New Zealanders are being caught out by unpleasant financial surprises, yet little meaningful action is being taken to improve people's financial literacy," Percy said.
A plethora of financial products and services makes it harder to make decisions and compare products and services, she said, and that's not just between providers.
"For example, one bank I reviewed had more than 50 different fee and penalty combinations in their basic savings account products alone, making it virtually impossible to compare the products within their range let alone make a competitive comparison," she said.
There may also be a tension between the business of a bank - making money - and the way Percy believes financial literacy can be built among bank customers.
"Improving customers' financial literacy will require financial institutions to shift the focus of their customer interactions from purely selling and up-selling, to adding value to the customer relationship," she said. "It will require taking the time to find out what their customers know, and what they need to know in order to ensure the product or service is right for them."
Because people process information in different ways, written information should be complemented by verbal advice, along with audio, video and pictorial aids, she said.
"To date, the financial sector's efforts to improve financial literacy have been little more than window-dressing. Whether this is deliberate is debatable.
"In many cases I suspect their efforts are well-meaning but based on the misguided assumption that consumers know and understand more than they actually do."
- ? Fairfax NZ News
Source: http://www.stuff.co.nz/business/money/8604890/Banks-may-be-playing-on-customer-ignorance
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